In a bid to stem the perennial depletion of Nigeria’s foreign exchange reserves, the Central Bank of Nigeria (CBN) will this week review the guidelines for the licensing of Bureau De Change (BDC) operators in the country.
Specifically, the central bank is expected to introduce tough measures that would tighten the licensing requirements for the forex dealers.
A reliable source at the presidency informed THISDAY yesterday that the CBN Governor, Mr. Godwin Emefiele, has discussed the problem with President Goodluck Jonahan and obtained his approval to review the licensing and funding regime for BDC operators.
According to the presidency source, the continuous funding of BDCs depletes the external reserves by an average of about $9 billion annually as there are presently 3,208 registered BDCs in the country. The CBN sells $50,000 to each BDC weekly.
But if the CBN grants licences to the prospective 1,417 operators that are currently awaiting approval, the amount of funding to BDCs annually by the central bank could go up to $12.025 billion per annum, which according to the presidency source is outrageous and a far cry from the past when BDCs were self-funded.
Nigeria’s external reserves stood at $37.090 billion as at last Thursday. The reserves derived mainly from the proceeds of crude oil earnings have fallen by $12 billion since its post-global crisis peak of $63 billion in April 2013 and this has remained a concern to the central bank and the federal government.
BDCs are the retail segment of the forex market. They are regulated by the central bank.
The presidency source further explained that as at 2008, as much as $11 billion was used to fund BDCs in the country.
As at 2006 when the practice of funding BDC operators started, only two countries in the world were involved in it – Nigeria and Kenya. However, Kenya has since discontinued the practice.
Funding of BDCs, according to the source, has led to the dollarisation of the economy because dollar cash is available.
“Today, houses, school fees, hotel bills, among others are priced in dollar in Nigeria. This clearly affects intermediation negatively because funds that are supposed to be kept in naira in banks for on-lending to businesses is significantly reduced. It also hurts the external reserves and affects transmission of monetary policy,” he explained.
The source added that the continuous funding of this arm of the forex market portrays the country in negative light as Nigerians move several millions of dollars in cash through the country’s international airports unchallenged.
According to him, lack of money trail for expenses further reinforces the perception of a corrupt nation involved in money laundering activities.
“CBN must do something to reduce this haemorrhage on our foreign reserves. Today, any person who has the capacity to deposit $20,000 at the CBN can own a BDC, hence the upsurge in the number of BDCs.
“CBN must therefore tighten the licensing requirements for BDCs,” the source argued.
A breakdown of the activities of BDCs in the country showed that between 1989 and 2004 when the Federal Ministry of Finance was in charge of licensing operators, there were only 74 firms in the sub-sector and they were self-funded.
However, between 2005 and 2009 when the responsibility of licensing operators was moved to the central bank, the number of firms increased significantly to 938. As at April 2006, the central bank started supplying $200,000, bi-weekly to the forex dealers. This was later increased to $300,000 twice a week between September 1, 2008 and 2009.
In 2009, the central bank introduced Class A and B BDCs with funding of $1 million and $100,000 per week respectively.
Nevertheless, as at 2010, the classification of BDCs was abolished and between 2010 and 2012, BDCs were funded at the rate of $1 million per week.
But as the number of licensed BDCs more than tripled in the same period, the CBN reduced the amount of forex sales to $50,000 a week to the operators.
The CBN last year withdrew the operating licences of 20 BDC operators over allegations of money laundering activities.
It had at the time revealed that the illegal activities of the forex dealers were partly responsible for the volatility observed in the forex market.